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HSBC’s Profit Jumps in 2017, But Below Expectations

Press release

Published February 21st, 2018 - 10:05 GMT

John Flint, Group Chief Executive of HSBC

HSBC Holdings’ pre-tax profit for 2017 more than doubled to $17.2 billion for 2017 from $7.11 billion last year due to the absence of hefty restructuring costs incurred in 2016. However, the banks’ profits fell short of expectations, thanks to a surge in bad debts.

“These good results demonstrate the strength and potential of HSBC. All our global businesses grew adjusted profits and we concluded the transformation programme that we started in 2015. HSBC is simpler, stronger, and more secure than it was in 2011. It has been my great privilege to lead HSBC for the last seven years,” Stuart Gulliver, the outgoing Group Chief Executive, said in a statement.

In the Middle East region, the bank reported profit before tax of $1.5 billion about the same as last year. In the UAE the bank reported $479 million profit before tax compared to $480 million reported in 2016. Saudi operations reported a marginal increase of $6 million in profit before tax to $441 million. Egypt witnessed decline in profit before tax to $305 million last year compared to $454 million.

In the global results, the bank missed estimates for fourth-quarter revenue and profit as it became the latest firm to take losses from two high-profile corporate fallouts and post a sharp decline in trading income at its investment bank, the bank said on Tuesday.

“[Stuart] Gulliver’s swan song at HSBC was a little off key, with fourth-quarter earnings missing expectations. Bad debts are up, thanks to two corporate exposures in Europe, and margins have come under pressure in both Europe and Asia,” said Fiona Cincotta, a senior market analyst at Citi Index.

The bank reported about $188 million higher impairments in the fourth quarter than a year earlier, largely driven by two individual corporate exposures in Europe. The two companies responsible were Steinhoff International Holdings NV — the South African retailer and Carillion Plc, the UK construction company. The loan losses drove down adjusted pre-tax profit to $3.6 billion in the fourth quarter.

Gulliver is stepping down after more than seven years at the helm of the bank, which has been through a painful restructuring. Taking over from Gulliver, John Flint, Group Chief Executive Designate is expected to see the positive results of past overhaul in the years ahead.

“I am working with the management team and the Board to evolve our strategy and execute it at pace, and I will update shareholders on this work by our half year results. The fundamentals of HSBC will remain the same as they always have — strong funding and liquidity, strong capital, and a conservative approach to credit,” said Flint.

The bank said it was planning additional tier 1 capital issuance of between $5 billion and $7 billion during the first half of 2018, and that it would undertake share buy-backs as and when appropriate. The bank has been able to maintain its capital buffer despite rolling out share buy-backs, the latest of up to $2 billion last July, and maintain the dividend payments that are key to the stock’s support among investors.

Background Information

HSBC

HSBC is one of the largest banking and financial services organisations in the world, with operations in 66 countries and territories. We aim to be where the growth is, enabling businesses to thrive and economies to prosper, and, ultimately, helping people to fulfil their hopes and realise their ambitions.